What The Trump Administration Means When It Says Countries 'Cheat' On Trade

Treasury Secretary Steven Mnuchin made the case again today. The U.S. won't apply steel and aluminum tariffs to Canada and Mexico, he said, if - if - they renegotiate the North American Free Trade Agreement. President Trump says a new and fair NAFTA treaty would exempt those countries from the tariffs. He also says the U.S. is being ripped off by virtually all its trading partners, a claim he has often made.

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PRESIDENT DONALD TRUMP: These two words, fairness and reciprocity, are an open invitation to every country that seeks to do business with the United States. And they are a firm warning to every country that cheats, breaks the rules and engages in economic aggression.

KELLY: NPR's John Ydstie is here to talk about this allegation that other countries cheat the U.S. on trade. Hey, John.

JOHN YDSTIE, BYLINE: Hey, good to be here.

KELLY: Glad to have you here. OK, so lay this out for us. These tariffs on aluminum and steel that the president wants to put in place, just how are other countries breaking the rules? What's the argument that President Trump makes?

YDSTIE: Well, the president says they're ripping us off. And I think that choice of words isn't exactly descriptive of what's going on with steel, for instance. The problem is an oversupply of steel in the world that's driving down prices and hurting the U.S. industry. And the oversupply is largely due to China's overproduction subsidized by the Chinese government. Actually, China now produces half of all the steel in the world, according to Chad Bown of the Peterson Institute.

CHAD BOWN: China's just producing much more steel today than it can consume itself. When it was growing at 10 or 12 percent a year a decade ago, it was fine. But now that it's only growing at about 6 percent a year, it doesn't need all that steel that it used to consume. So now it's exporting it to the world. And that is creating problems.

KELLY: So John Ydstie, does the president have a point? Is China ripping us off?

YDSTIE: Again, I think it's probably not the best description of what's going on. It is hurting our manufacturers, but it's also supplying cheap steel to parts of the U.S. economy that use it, from carmakers to soup can makers. So you could say China's subsidies to its steel industry are also subsidies to our steel users. China's motivation has a lot to do with its government's need to keep its steel workers employed. If the government stopped subsidizing overproduction, they'd have to lay off thousands of workers.

But by not doing that, China is pushing its labor problem on other countries, including the U.S.

KELLY: Including the U.S. Let me turn you briefly to other countries that the U.S. imports from, Canada and Mexico, also Germany, European partners. Are they somehow cheating the U.S.?

YDSTIE: I think most trade specialists would say no. And we need those countries to supply at least some of the steel that we import. There are already barriers to Chinese steel in the U.S. so very little Chinese steel gets in. But most trade economists would agree that mostly we don't want to hurt our allies. That's not a good way to attack overproduction.